An equity fund is a mutual fund scheme that invests mostly in listed equities. As per current Mutual Fund Regulations, any equity mutual fund scheme must invest at least 65% of its assets in equities or equity-related instruments. An Equity Fund can be managed actively or could be a passive fund. Index funds and ETFs are passively managed. Equity mutual funds are mainly categorized according to its holdings in the different kinds and sizes of the companies, investing theme or style etc. The same can be found in the scheme information document (SID). Market capitalization determines the size of an equity share and based on these, mutual funds categorize them as large, mid or small cap. This also helps to categorize equity mutual funds. Equity fund schemes are also categorized as domestic (investing in stocks of only Indian companies) or international (investing in overseas companies). These can be broad-market, regional, or single-country funds.

Types of Equity Funds – Following are few types of equity fund schemes.



Types	Description
Large Cap	Large-cap equity funds invest largely in companies with a large market capitalization. This type of fund is known to offer stability and sustainable returns, over some time. Typically, top 100 companies in terms of market capitalization are classified as large cap stocks.
Small Cap	Small Cap mutual Funds invest in stocks of smaller-sized companies whose total market capitalization is typically ranked 251^st onward. Therefore, the risk associated with small-cap stocks is higher than large and mid-cap stocks.
Mid Cap	Mid-Cap Equity Funds invest in companies whose total market capitalization is ranked between 101^st to 250th. Mid-cap stocks carry more risk than large-cap stocks but are less risky than small-cap stocks. These funds have great potential to offer higher return than large-cap stocks.
Multi Cap	Multi Cap Equity Funds invest in stocks of companies across the stock market regardless of size and sector. But they must have holdings in large, mid and small companies with mandatory holding of 25% in each. Due to this, multi cap funds are less risky.
Thematic Equity Funds	These funds invest in securities of specific sectors such as Banking services, Information Technology, and pharma sector, etc.
ELSS	It is an open-ended equity-linked tax saving mutual fund scheme with a lock-in period of 3 years

These are some of the main types of equity funds.

Advantages of Equity Funds

Equity funds offer several advantages, including:

Diversification: Investing in equity fund schemes allows investors to spread their investments across various stocks, reducing the impact of poor performance from any single stock.
Professional Management: Fund managers with expertise analyse market trends, company performance, and economic indicators to make informed investment decisions on behalf of investors.
Liquidity: Units of equity fund schemes can be easily bought or sold, providing liquidity compared to direct investment in individual stocks. However, some funds do have a lock in period like the tax saving mutual funds which has a 3 year lock in period.
Please note that during the lock-in-period, the tax saving mutual funds cannot be redeemed.
Potential for Higher Returns: Historically, equities have shown the potential for higher returns compared to other asset classes over the long term, although they come with higher volatility.
Dividend Income: Some equity funds focus on dividend-paying stocks, providing investors with a potential income stream in addition to capital appreciation.
Flexibility: Investors can opt for systematic investment plans (SIPs) to invest regularly, promoting disciplined investing.

It is important to note that while investment in equity fund offers these advantages, they also involve risks, and past performance does not guarantee future results. Within the equity fund category, the tax saving mutual funds also known as ELSS mutual funds help investors save taxes. It’s crucial to assess risk tolerance and investment goals before considering any equity fund investments.